Small-cap stocks closed out 2023 with a bang as the S&P 600 Small-Cap ETF (NYSEARCA:SPSM) surged more than 10% over the past month, nearly tripling the large-cap S&P 500’s performance. Most of that exuberance comes from rate-cut rumors.
Small-cap stocks suffered more under the current economic cycle than other larger companies. But that’s about to change. The top small-cap stocks adapted to the challenge and emerged stronger.
Of course, capturing broad small-cap stock upside is easiest with an ETF like SPSM. Still, these companies are a great start if you want to snag the small-cap stocks with true 10X potential and leave the losers behind.
Rocket Lab USA (RKLB)
Christmas came early for Rocket Lab USA (NASDAQ:RKLB) bulls last week, as some strong news pushed shares nearly 20% higher in a single trading session.
After limping in the $4 range following a flight failure, a new US government contract worth $515 million put the wind back into the small-cap stock’s sails. The deal includes an agreement to develop, deploy, and maintain 18 space vehicles.
While far from competing with SpaceX for government cash, the development means big things and points to 10X potential over the coming years.
Days before the news dropped, Rocket Lab also hit another significant milestone. It launched its 42nd overall rocket and 10th in a single year, setting an annual launch record. Space is set to be a $1 trillion industry (eventually). RKLB is already well-positioned to be a major player in the rapidly growing sector.
Chegg (NYSE:CHGG) is a unique small-cap stock play, as many investors remember the EdTech company as a textbook rental operator and little more.
Chegg is revolutionizing education in the age of AI. With its growing platform, Chegg is positioned as a top small-cap stock with 10X potential in the education sector.
Chegg’s recent earnings presentation is full of opportunities and highlights emerging trends. Notably, Chegg has an AI-powered personal learning assistant. The tool serves as an alternative to legacy institutions for self-education in a digitized world.
These tools enable personalized learning at scale, eliminating the limitations of teacher/student ratios. Chegg’s approach to education sets it apart from other small-cap stocks in EdTech and AI.
TransMedics Group (TMDX)
TransMedics Group (NASDAQ:TMDX) is one of many small-cap stocks delivering innovation within healthcare. TMDX has the only FDA-approved platform for lung, heart, and liver transports. The hardware addresses a series of complex challenges in healthcare.
In 2022, nearly 15,000 organ and tissue owners died, but the organ utilization rate was far below ideal ranges.
For example, within that block of 14,905 viable lungs, only 2,692 were successfully transplanted. The disparity comes largely from the difficulty in safely transporting and maintaining viable tissue – a need TMDX addresses.
TMDX’s sales are soaring, indicating its long-term potential. The company’s Q3 revenue grew by 26% to $66.4 million. TMDX’s growth stems from technical advancements and the post-pandemic surgery realignment trend, increasing organ transplant opportunities for terminal patients.
Planet Labs (PL)
Planet Labs (NYSE:PL) is another space stock capturing part of that $1 trillion potential market opportunity I covered with Rocket Lab USA.
Planet Labs, by comparison, is focusing its sights on more terrestrial opportunities, though.
The company relies on satellites for high-resolution geospatial imagery. High-res geospatial imagery is utilized for agriculture management, climate change monitoring, urban zone development, and more as technology progresses. Planet Labs’ tech effectively gives clients a bird’s-eye view of their domain, allowing for better data to drive decision-making.
PL trades in penny stock territory, making it a great small-cap stock for budget-conscious investors. PL’s financials are gaining ground and pushing toward 10X potential despite its low price. The recent report indicated an 11% YoY revenue increase, with 94% being recurring annual sales. Recurring revenue is critical for small-cap stocks like PL to manage cash flow and gauge customer satisfaction with new tech offerings.
ChargePoint Holdings (CHPT)
ChargePoint Holdings (NYSE:CHPT) almost ended 2023 on a sour note.
High capital expenditure costs and slackened electric vehicle sales caused the company’s sales model to underperform, leading to poor earnings. CHPT shares surged almost 25% in the past month due to rate-cut rumors. Today, they trade close to pre-earnings drop levels.
The trend is clear regardless of your perspective on EVs. EVs are becoming more common in the automotive industry, especially in countries like Canada that are transitioning away from gas-powered cars.
With unquestioned industry dominance, this small-cap stock thrives on a strong long-term trend. The cost of rapid expansion is substantial. Expensive charging network deployment and maintenance costs are why higher interest rates affect stock. Lower debt costs from potential rate cuts could lead to increased spending for CHPT. This will enhance its growth and strengthen its position in the EV industry.
Digital World Acquisition Corp (DWAC)
Digital World Acquisition Corp (NASDAQ:DWAC) is a bit of an outlier compared to the other small-cap stocks.
The company is a SPAC set to merge with Trump Media & Technology Group, although the move has been mired in legal maneuvers and similar struggles.
Recently, the company filed an amendment to its SEC S-4 registration. The amendment suggests that the merger’s conclusion could occur within the initial quarter of 2024. That comes as a welcome early Christmas present for the many DWAC shareholders, who have been anxiously awaiting a turnaround.
DWAC’s long-term potential is less clear. TMTG’s primary property (social media platform Truth Social) struggles to maintain market share compared to monolithic competitors. Downloads have slowed rapidly since its initial rollout.
The company also seems to struggle to capture viable advertisers. Still, DWAC’s merger marks a major inflection point and could unlock new opportunities for TMTG and Truth Social to pivot into profitability. But the existing board and executives must deftly navigate these tricky waters.
AST SpaceMobile (ASTS)
Rounding out our small-cap stocks for 2024 is another space stock with 10X potential: AST SpaceMobile (NASDAQ:ASTS).
The company is developing a direct-to-consumer satellite connectivity service that brings 5G cell service to even the most remote areas. T
his sets the stock apart from companies like StarLink, who offer a more well-rounded suite of connectivity options, but it also means the service will ultimately offer a lower price point to those in emerging economies with limited cell service.
This year, the company marked a major milestone as it completed its first satellite-to-smartphone call between Hawaii and Spain.
The call proved its operational viability as it enters the next growth stage. Expect to see commercial offerings kick off in 2024’s first quarter as the company plans to launch satellite service on the back of planned SpaceX flights.
A major concern for ASTS is funding, as limited current revenue and high initial costs put pressure on its finances. But, though nothing is set in stone, a rapid series of FCC filings suggests ASTS has funding well-managed and is ready to race to market.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.